A History-Friendly Model of the Evolution of the Pharmaceutical Industry: Technological Regimes and Demand Structure

Christian Garavaglia, Franco Malerba (), Luigi Orsenigo and Michele Pezzoni
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Franco Malerba: KITeS, Bocconi University, Milan, Italy - Bocconi University, Department of Economics

No 36, KITeS Working Papers from KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy

Abstract: This paper examines how the nature of the technological regime governing innovative activities and the structure of demand interact in determining market structure, with specific reference to the pharmaceutical industry. The key question concerns the observation that - despite high degrees of R&Dand marketing-intensity - concentration has been consistently low during the whole evolution of the industry. Standard explanations of this phenomenon refer to the random nature of the innovative process, the patterns of imitation and the fragmented nature of the market into multiple, independent submarkets. We delve deeper into this issue by using an improved modified version of our previous “history-friendly” model of the evolution of pharmaceuticals. Thus, we explore how changes in the technological regime and/or in the structure of demand may generate or not substantially higher degrees of concentration. The main results are that, while technological regimes remain fundamental determinants of the patterns of innovation, demand structure plays indeed a crucial role in preventing the emergence of concentration through a partially endogenous process of discovery of new submarkets. However, it is not simply market fragmentation as such that produces this result, but rather the entity of the “prize” that innovators can gain relative to the overall size of the market. Similarities and differences with other approaches are also discussed.

Keywords: Industrial dynamics; innovation; market structure; pharmaceuticals; History-Friendly model (search for similar items in EconPapers)
JEL-codes: C63 L10 L65 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2010-11, Revised 2010-11
New Economics Papers: this item is included in nep-com, nep-his, nep-ino, nep-mic and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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